Class Action Lawsuit Against Classmates.com Won’t Fade Away

United Online (NSDQ: UNTD) recently put its Classmates.com website out to pasture; it now redirects to MemoryLane. It will be harder to get rid of an ongoing class action lawsuit alleging the site sent out misleading emails. A judge has thrown out a proposed settlement that would let the plaintiffs’ attorneys walk away with more than $1 million while most class members would have had to settle for $2 coupons.

The class was composed of more than 50 million registered users of Classmates.com, all of whom received an email telling them that an old friend had viewed their profile or signed a “guestbook,” and suggesting they become a paying member of Classmates.com to make contact. According to the plaintiffs’ suit, in fact, for the great majority no one had shown an interest in their profile.

For 3 million users who took the bait and paid between $10 and $40 to Classmates.com, the settlement would have offered a $3 cash payment. Users who received the email but chose not to pay the website would have received a $2 coupon–for Classmates.com, a service they had already indicated their lack of interest in.

Those settlement terms drew close to 200 complaints, including an objection from the Center for Class Action Fairness, a conservative non-profit which monitors class action suits.

Because Classmates.com only had to pay members who respond to the e-mailed notice of settlement, if the settlement had been approved the company would have only paid out about $52,000 to satisfy all claims, even though the settlement had been publicized as having been worth “up to $9.5 million.” That sum would have only come into play if 100 percent of eligible users had asked for their $3 checks.

The vast majority of class members responded to e-mails alerting them of the settlement by doing nothing, but about 200 vocally complained, and U.S. District Judge Richard Jones, who is overseeing the case, took notice. “Class members mocked the $2 coupon, dismissed the $3 payment as paltry, and, almost uniformly, decried a settlement that provided them with little benefit while making more than a million dollars available for class counsel’s fees,” he wrote in an order issued last week. As for the $2 coupons, Jones noted that wasn’t really any gift at all. “This is the hallmark of a promotion for Classmates, not of a benefit conferred.”

The parties will now have to submit a new settlement proposal, or continue to litigate the case.